SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of February 2003
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation of registrant's name into English)
LAURENCE POUNTNEY HILL,
LONDON, EC4R 0HH, ENGLAND
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-
Enclosures: Bonus Declaration announcement released on 25 February 2003
25 February 2003
PRUDENTIAL ANNOUNCES WITH-PROFITS BONUSES
Prudential today announced its 2003 bonus rates on with-profits savings and
investment policies.
Policyholder returns:
- Prudence Bond holders will have a regular bonus of 3.25% added to their
policies in 2003 (compared with 4.0% in 2002);
- Personal Pension customers will have a regular bonus of 3.5% added to
their policies in 2003 (compared with 4.5% in 2002) ;
- The final bonuses payable on future claims have been reduced. The effect
is to reduce claim values generally compared with those available a year ago
by no more than 12% for pensions and 10% for other products;
- The investment return achieved on the Prudential With-Profits Fund during
2002 was minus 8.1%. In the same year the return on the FTSE 100 share
index, including reinvestment of income, was minus 22.2%; the FTSE 100 share
index fell by 24.5%.
- In total, GBP2.5 billion will be added to the value of customers' policies
as a result of today's bonus announcement.
What does this mean for customers?
Typical Prudence Bond customer
- GBP10,000 invested on 6th April 1998 will be worth GBP12,280 on 6th April
2003. This is 0.1% less than the value of the same policy on 6th April 2002.
The revised value represents an overall return of 4.2% per annum over the
last 5 years. This compares with a return of 3.2% p.a. on deposit accounts
and minus 0.2% p.a on unit trusts over the same period.*
- GBP10,000 invested on 6th April 1993 will be worth GBP19,059 on 6th April
2003. This is 10.1% less than the value of the same policy on 6th April
2002. The revised value represents an overall return of 6.7% per annum over
the last 10 years. This compares with a return of 3.8% p.a. on deposit
accounts and 5.9% p.a. on unit trusts over the same period.*
Bonus announcement in context
Claim values have been reduced this year in response to the ongoing market
turbulence, with the FTSE 100 share index falling by 43% over the last three
years. However our with-profits policyholders have benefited from the active
management of, and the substantial degree of diversification in, the assets of
Prudential's With-Profits Fund, and this has protected them from the full impact
of the significant falls in equity values.
With-profits policies continue to provide policyholders with a medium to long
term investment which aims to deliver higher returns over the long term than
deposit accounts, with less risk from investment market crashes than direct
investment in shares. This is done through smoothing out the peaks and troughs
of the Fund's investment returns. With-profits funds invest in a range of
investment vehicles, including shares, property and fixed interest investments.
David Belsham, Appointed Actuary of Prudential Assurance said: "Although claim
values have fallen this year, the returns on policies will, in general, still
exceed those achieved on deposit-based products and will be significantly in
excess of those achieved on alternative exposed investment products. The
Prudential With-Profits Fund remains one of the strongest in the UK, with an AA+
rating from Standard & Poor's, and we are well positioned to continue to deliver
competitive returns to existing and new customers in the future."
- ENDS -
Media Contacts:
James Murray: Tel: 020 7150 2654 or 07810 181757
Darragh Leeson: Tel: 020 7150 2600 or 07801 856011
NOTES TO EDITORS
* Source -Typical Prudence Bond Customer
Prudence Bond % growth based on GBP10,000 invested on 6 April 1993 and 1998
Lipper Hindsight: Average Moneyfacts 90 Day Account, % growth based on GBP10,000
invested on 1 January 1998 and 1993
Lipper Hindsight, Average Balanced Managed, % growth based on GBP10,000 invested
on 1 January 1998 and 1993
1. SAIF
The above details do not apply to SAIF, the closed Scottish Amicable Fund.
2. Market Value Reduction Policy (MVRs)
Prudential applies MVRs on policies where the face value of the policy
significantly exceeds the value of the underlying assets.
Prudential's current MVR policy is as follows:
- MVRs are decided on a case by case basis.
- Anyone holding a with-profits policy for five years or more who withdraws
more than GBP10,000 over any twelve month period may be subject to an MVR.
- Anyone who has held a with-profits policy for less than five years may be
subject to an MVR regardless of the amount withdrawn.
- MVRs are not applied on death or, in the case of retirements, on selected
maturity dates.
3. Fund Performance in context:
In the year to 31 December 2002, the FTSE 100 index dropped by 22.2%. The
Prudential With-Profits Fund performed markedly better and whilst the return was
negative at minus 8.1%, investors continue to be sheltered from the poor
underlying performance of the stock markets. With-profits products still
continue to balance the risk and the return for the policyholder.
Customers have been, and continue to be, attracted to with-profits style
policies because of the benefits that smoothing brings to potential returns.
When the investment markets are buoyant and the returns are stronger,
policyholders are naturally content with the continued growth of their policies.
But when market conditions see bonus rates reduced, customers quite naturally
begin to question the wisdom of their investment choice. However, it is in such
times of reducing returns that the rationale used by the policyholder in
selecting to invest in a smoothed with-profits is completely vindicated.
4. Customer Communication:
Prudential will continue its policy of openly communicating with policyholders.
Advertisements announcing this year's bonus declaration will appear in a range
of national daily newspapers.
5. Customers seeking further information should contact:
Prudential: t: 0845 6770101, Mon - Fri 9am -5pm www.pru.co.uk
6. Prudential Bonus Tables: sample claim values as at April 2003 are shown
below, with figures for April 2002 in brackets.
Contract Term (years) Premium Claim Value Effective Rate of Return
p.a. to policyholder
Prudence Bond 10 GBP10,000 single premium GBP19,059 (GBP23,790) 6.7% (9.1%)
Personal 10 GBP200 per month gross GBP30,705 (GBP35,767) 4.8% (7.7%)
Pension (Total GBP24,000)
The Prudence Bond return is based on 101 per cent allocation, 5 per cent bid/
offer spread, invested for ten years to 6th April 2003.
Prudence Bond Optimum Bonus Contract
The Prudence Bond Optimum Bonus contract will have a 4% annual bonus added. The
Optimum Bonus Fund has a greater emphasis on fixed interest securities and cash,
with the aim of producing a higher annual bonus for those seeking greater '
income' from their investment. Last year the bonus was 5%.
7. Scottish Amicable Bonus Tables:
Contract Term (years) Premium Payout Effective Rate of Return
p.a. to policyholder
Home Purchaser 25 year (male age GBP50 per month GBP53,510 (GBP67,738) 9.0% (10.5%)
Mortgage 30 n/b)
Endowment
Personal Pension 20 GBP200 per month GBP140,774 9.7% (11.0%)
gross (GBP175,282)
The Home Purchaser calculations based on a male age 30 next birthday at outset
paying a premium of GBP50 per month maturing after a 25-year term.
The Personal Pension is based on a male retiring at age 65 at the end of a 20
year term having paid GBP200 per month with the last payment on 1 March 2002.
8. Prudential's financial strength
Financial strength is an important issue for customers, who want to be assured
that their money is safe. Prudential's long-term fund is rated AA+ by Standard
and Poor's.
9. Attached with this announcement is a with-profits factsheet. (Appendix 1)
WITH PROFITS FACTSHEET APPENDIX 1
1. Bonus Policy
Prudential's bonus policy is set out in detail in its With-Profits Guide
(available on request from Prudential). The main aims of the company's bonus
policy are:
- To give each with-profits policyholder a return on the premiums which he
or she has paid that reflects the earnings of the underlying investments,
whilst smoothing out the peaks and troughs of investment performance; and
- To ensure that with-profits policyholders receive a fair share of the
profits, (as decided by the Directors of PAC on the advice of the Appointed
Actuary), distributed from the with-profits fund by way of bonus additions
to their policies.
2. Types of Bonus
There are two types of bonus:
Regular bonuses (or annual bonuses) are added to policies each year in order to
gradually increase the guaranteed benefits under the policy.
Final bonuses (or terminal bonuses) are added when the benefits of a policy are
realised (ie on surrender, maturity or death). These bonuses are used to make up
the difference between the guaranteed benefits and the overall smoothed claim
value. Prudential uses these bonuses to return to each policyholder a fair share
of the assets of the with-profits fund, while reducing the impact of market
changes, especially around the date of maturity. Payment of a final bonus is not
guaranteed.
3. Determination of Bonus Rates
The balance between regular and final bonuses influences the investment strategy
that the fund can adopt. Regular bonuses increase the amounts guaranteed to
policyholders and so need to be backed by less risky (and so normally less
rewarding) investments. This, in turn, affects the overall level of return
achieved. Regular bonus rates are therefore targeted on a prudent proportion of
the investment return that we expect to earn in the future. Regular bonus rates
have been gradually reduced over the last twelve years in line with declining
inflation and the associated reduction in expected future investment returns.
Total claim values are set by reference to "asset shares", which are calculated
for typical policies by accumulating the premiums paid, less allowance for
expenses and charges, at the actual rates of return earned on the assets of the
with-profits fund over the life times of those policies. The asset shares also
include allowance for distributions to shareholders and profits from other
sources arising in the with-profits fund. These asset shares provide a target
level for claim values paid to customers.
4. What is smoothing?
Smoothing is applied so that the claim values actually paid change only
gradually over time. In normal investment conditions, we aim to ensure that
total payouts on equivalent policies do not change by more than 10 per cent from
one year to the next. 2002 has been another turbulent year for the markets, the
FTSE 100 index having fallen by 22.2% up to 31 December 2002, following falls of
16.2% & 10.2% in 2001 and 2000 respectively. We have therefore reduced pay-outs
by more than the normal smoothing limits.
Prudential's intention is that any smoothing of profits or losses should balance
out over time, so that in the long run with-profits policyholders neither gain
nor lose as a result of the smoothing policy.
5. Where do profits from the with-profits fund go?
Prudential's with-profits policyholders currently receive 90 per cent of the
profits distributed from the with-profits fund as bonus additions to their
policies and shareholders receive the remaining 10 per cent as dividend
payments. Since policyholders and shareholders share proportionately in these
profits, their interests are exactly aligned.
6. Prudential's with-profits investment strategy.
The company's investment strategy is to seek to secure on behalf of its
policyholders the highest combination of income and growth in capital value
while maintaining the security of the fund.
The table below shows the investment mix of Prudential's with-profits fund.
31/12/02 30/9/02 30/6/02 31/12/01 31/12/98
% % % % %
Equity shares
- UK shares 32 32 36 38 59
- Non-UK shares 13 13 15 14 13
Fixed interest 33 33 29 28 12
Cash 2 3 2 3 5
Property 18 18 16 15 11
Alternative investments 2 1 2 2 -
Total 100 100 100 100 100
The change in asset mix prior to 31 December 2001 has had a substantial
beneficial impact on investment returns.
The broad asset mix will continue to be reviewed as the economic environment and
market valuations change.
7. Investment Returns
The underlying investment return on the Prudential with-profits fund was minus
8.1% in the year to 31/12/02 compared with the decline of 22.2% in the FTSE 100
index. Returns on the with-profits fund in recent years have been as follows:
Year 1997 1998 1999 2000 2001 2002
Gross Return % 19.8 12.6 19.3 3.0 -3.5 -8.1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date 25 February 2003
PRUDENTIAL PUBLIC LIMITED COMPANY
By: /s/ Steve Colton
Steve Colton
Group Head of Media Relations